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CORRECTION: SMG Industries, Inc. Reports 2021 $14.77 Million Revenue Third Quarter and $34.61 Million for the Nine Month Financial Results

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Houston, Texas – (NewMediaWire) – November 17, 2021 – SMG Industries, Inc. (the “Company”) (OTCQB:SMGI), a growth-oriented transportation services company focused on the domestic infrastructure logistics market, today reported financial results for its third quarter ended September 30, 2021.

Third Quarter Financial Highlights:

·         Revenues increased approximately 117% to $14,772,939 for the 3 months ended September 30, 2021, compared to the three months ended September 30, 2020,

·         Revenues increased approximately 85% to $34,618,358 for the 9 months ended September 30, 2021 compared to the year ago period,

·         Adjusted Gross Margins for the nine months ended September 30, 2021, was $1,745,470, after adjusting for depreciation, a non-cash expense within cost of sales of $4,074,738,

·         Net loss from continuing operations was $3,928,964 for the 3 months ended September 30, 2021, compared to a net loss of $3,975,802 for the 3 months ended September 30, 2020,

·         Total Assets grew to $31,326,756 at September 30, 2021 compared to $27,425,148 at December 31, 2020,

·         A $6,400,000 first tranche of senior debt refinancing was funded on September 7, 2021, with the final tranche funded of $6,340,000 (for a total of $12,740,000) on November 1, 2021, lowering interest expense and payments,

·         The Company continues to move forward with its infrastructure growth platform of bridge beam and over-dimensional heavy haul, as well as its “buy and build” growth strategy seeking to acquire additional owner/operator logistics terminals as well as standalone transportation services companies.

Selected financial report highlights:

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Revenues for the quarter ended September 30, 2021 increased to $14,772,939 from $6,810,714 for the three months ended September 30, 2020, an increase of 117%, driven by increased drilling rig relocations, improved customer demand resulting from lessened impacts of the global COVID-19 pandemic and the establishment of a new East Houston terminal generating additional flat bed transportation revenues.

During the three months ended September 30, 2021, cost of sales increased to $15,292,090, or 104% of sales, compared to $8,674,357, or 127% of sales for the 2020 period. Cost of sales includes non-cash depreciation expense of $1,337,233 and a refundable tax credit reducing labor costs of $836,971 for the three months ended September 30, 2021, and $1,461,979 for the comparable period in 2020. The cost of sales exceeding revenues during 2021 and 2020 was the result of lower than required revenues to cover fixed costs within cost of sales, higher labor costs and increased third party contract services utilized to address rapidly increasing customer demand, partially offset by improved pricing during the period. The Company believes it can improve gross margins through additional sales volumes from infrastructure logistics market growth and increased in oilfield rig move activity given current hydrocarbon price improvements, continued market recovery post-COVID pandemic with more activity, better utilization of our equipment inventory, lessening costs of third party contract services and continued increases in our pricing.

Selling, general and administrative expenses for the three months ended September 30, 2021 was $1,455,253, or 9.9% of revenues, compared to $1,000,032, or 14.7% of revenues, for the quarter ended September 30, 2020. The increased amount of SG&A was reflecting of the 109% increase in sales and related costs and included a benefit of $129,949 related to refundable employee retention tax credits during the three months ended September 30, 2021. As a percentage of revenue, the improvement in SG&A is primarily the result of higher revenues absorbing additional fixed costs.  

Interest expense, net was $2,059,908 and $1,087,535 for the three months ended September 30, 2021 and 2020, respectively. The increase in interest expense in the third quarter of 2021 was the result of additional borrowings from convertible notes payable and its related expense.

The net loss from continuing operations for the quarter ended September 30, 2021 was $3,928,964 as compared to a net loss of $3,975,802 for the quarter ended September 30, 2020.  The net loss in the third quarter of 2021 compared to the previous period was due primarily to slightly higher loss from continuing operations, significantly higher interest expense, partially offset by the gain on PPP loan forgiveness of $105,000.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Revenues for the nine months ended September 30, 2021 increased to $34,618,358 from $18,670,321 for the nine months ended September 30, 2020, an increase of 85%, driven by the acquisition of 5J on February 27, 2020, not fully realized in the comparable period, increased drilling rig activity given higher hydrocarbon prices, improved customer demand resulting from lessened impacts of the global COVID-19 pandemic and to the establishment of a new East Houston terminal generating additional flat bed transportation revenues.

During the nine months ended September 30, 2021, cost of sales increased to $36,947,626 or 107% of sales, compared to $21,825,811 or 117% of sales for the 2020 period. Cost of sales includes non-cash depreciation expense of $4,074,738 and a refundable tax credit reducing labor costs of $836,971 for the nine months September 30, 2021, and $3,434,164 for the comparable nine month period in 2020, the increase of which was primarily the result of the 5J acquisition and its related fair value step up adjustments in the prior year. The cost of sales exceeding revenues during 2021 and 2020 was the result of lower than required revenues to cover fixed costs within cost of sales. The Company believes it can improve gross margins through additional sales volumes from infrastructure logistics market growth and increased in oilfield rig move activity given current hydrocarbon price improvements, continued market recovery post-COVID pandemic with more activity, better utilization of our equipment inventory, lessening costs of third-party contract services and continued increases in our pricing.

Selling, general and administrative expenses for the nine months ended September 30, 2021 was $4,584,854 or 13.2% of revenues, compared to $2,554,107, or 13.7% of revenues. Selling general and administrative expenses as a percentage of revenues was basically unchanged compared to the previous period. Selling general and administrative expenses primarily includes personnel costs, facilities expenses, insurances and professional fees, and included a benefit of $129,949 related to refundable employee retention tax credits during the three months ended September 30, 2021.

Interest expense, net was $4,630,685 and $2,563,606 for the nine months ended September 30, 2021 and 2020, respectively. The increase in interest expense was a result of the increased convertible note borrowings to fund the 5J acquisition and note financing.

The net loss from continuing operations for the nine months ended September 30, 2021 was $8,156,892 as compared to a net loss of $9,698,649 for the nine months ended September 30, 2020. The reduction in the net loss was due primarily to the gain on PPP loan forgiveness of $3,253,100, partially offset by higher cost of sales, selling general and administrative expenses and interest expense.

We plan to address our net loss and future operating results with a goal to achieve positive cash flow from operations by continuing to increase sales organically and/or through acquisitions, covering more fixed costs within cost of sales, improving gross margins with better sales mix adding more higher margin service revenues such as super heavy haul, and reducing general and administrative costs including professional fees.

SMG Industries, Inc.’s CFO, Mr. Allen R. Parrott, stated, “We are pleased to report this 117% quarterly revenue growth compared to the third quarter of 2020. We believe the recent improved mix of heavy haul freight and utilization of assets on higher volumes should have additional positive impact on margins for SMG Industries. The Company is also very pleased to conclude the refinancing of more expense senior secured acquisition debt from February 2020 with new lenders that offer interest only terms for the first 12 months and a forty eight month term out of principal and interest thereafter given the company substantial savings of cash flow in fixed charge payments.” 

Additional information including the Company’s financial statements, footnotes and management’s discussion and analysis can be found in the third quarter 2021 report filed in the Form 10-Q on November 15, 2021 with the Securities and Exchange Commission.

Selected Financial Tables

SMG INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
           
 
      September 30,   December 31,
      2021   2020
           
ASSETS      
Current assets:      
  Cash and cash equivalents  $               225,139    $               263,814
  Restricted cash                   717,165                     715,274
  Accounts receivable, net of allowance for doubtful accounts of $796,784 and $691,098       
    as of September 30, 2021 and December 31, 2020, respectively              11,269,533                  4,920,967
  Prepaid expenses and other current assets                2,991,762                  1,409,996
  Current assets of discontinued operations                     17,435                     437,787
           
    Total current assets              15,221,034                  7,747,838
           
  Property and equipment, net of accumulated depreciation of $10,136,891 and $5,991,572      
    as of September 30, 2021 and December 31, 2020, respectively              11,953,176                16,337,914
  Right of use assets – operating lease                3,310,099                  1,270,989
  Other assets                   840,947                     499,707
  Other assets of discontinued operations, net                       1,500                  1,568,700
           
    Total assets   $          31,326,756    $          27,425,148
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT      
Current liabilities:      
  Accounts payable   $            4,491,278    $            3,171,086
  Accounts payable – related party                   275,569                     205,444
  Accrued expenses and other liabilities                4,603,280                  2,373,057
  Right of use liabilities – operating leases short term                1,054,836                     575,517
  Deferred revenue                     30,000                       30,000
  Secured line of credit                7,005,211                  4,046,256
  Current portion of unsecured notes payable                2,425,258                  2,187,436
  Current portion of secured notes payable, net                7,914,180                  4,010,627
  Current portion of convertible note, net                               –                       50,000
  Current liabilities of discontinued operations                1,102,308                  2,243,037
           
    Total current liabilities              28,901,920                18,892,460
           
Long term liabilities:      
  Convertible note payable, net                3,495,262                  2,417,335
  Notes payable – unsecured, net of current portion                1,351,640                  1,040,223
  Notes payable – secured, net of current portion                9,433,339                14,038,409
  Right of use liabilities – operating leases, net of current portion                2,568,072                     846,212
  Long term liabilities of discontinued operations                   178,129                  1,008,362
           
    Total liabilities              45,928,362                38,243,001
           
Commitments and contingencies       
           
Stockholders’ deficit      
  Preferred stock 1,000,000 shares authorized:      
    Series A preferred stock – $0.001 par value; 2,000 shares authorized; 2,000 shares issued                              2                                2
    and outstanding at September 30, 2021 and December 31, 2020       
    Series B convertible preferred stock – $0.001 par value; 6,000 shares authorized;  no shares issued       
    and outstanding at  September 30, 2021 and December 31, 2020, respectively                               –                                 –
  Common stock – $0.001 par value; 250,000,000 shares authorized; 25,725,310 and 19,446,258 shares      
    issued and outstanding at September 30, 2021 and December 31, 2020, respectively                     25,726                       19,447
  Additional paid in capital              15,059,907                10,978,254
  Accumulated deficit             (29,687,241)               (21,815,556)
           
    Total stockholders’ deficit             (14,601,606)               (10,817,853)
           
    Total liabilities and stockholders’ deficit  $          31,326,756    $          27,425,148
           
           
The accompanying notes are an integral part of these unaudited consolidated financial statements

SMG INDUSTRIES INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS  
For the three and nine months ended September 30, 2021 and 2020  
(unaudited)
                         
                         
          Three months ended   Nine months ended  
          September 30, 2021   September 30, 2020   September 30, 2021   September 30, 2020  
                         
  REVENUES    $                    14,772,939    $                      6,810,714    $                    34,618,358    $                    18,670,321  
                         
  COST OF REVENUES                          15,292,090                            8,674,357                          36,947,626                          21,825,811  
                         
  GROSS PROFIT                             (519,151)                          (1,863,643)                          (2,329,268)                          (3,155,490)  
                         
  OPERATING EXPENSES:                  
    Selling, general and administrative                            1,455,253                            1,000,032                            4,584,854                            2,554,107  
    Acquisition costs                                          –                                          –                                          –                            1,485,829  
                         
    Total operating expenses                             1,455,253                            1,000,032                            4,584,854                            4,039,936  
                         
  LOSS FROM OPERATIONS                          (1,974,404)                          (2,863,675)                          (6,914,122)                          (7,195,426)  
                         
  OTHER INCOME (EXPENSE)                  
    Interest expense, net                          (2,059,908)                          (1,087,535)                          (4,630,685)                          (2,563,606)  
    Gain on PPP loan forgiveness                               105,000                                          –                            3,253,100                                          –  
    Other income                                      348                                    (159)                                 19,889                                 74,587  
    Gain (loss) on settlement of notes payable                                          –                               (14,204)                                          –                               (14,204)  
    Gain on sale of assets                                          –                               (10,229)                               114,926                                          –  
    Total other income (expense)                          (1,954,560)                          (1,112,127)                          (1,242,770)                          (2,503,223)  
                         
  NET LOSS FROM CONTINUING OPERATIONS                          (3,928,964)                          (3,975,802)                          (8,156,892)                          (9,698,649)  
                         
    Income (loss) from discontinued operations                               316,926                             (420,254)                               360,207                             (935,623)  
  NET LOSS                           (3,612,038)                          (4,396,056)                          (7,796,685)                        (10,634,272)  
                         
    Preferred stock dividends                               (25,000)                               (97,945)                               (75,000)                             (229,041)  
                         
  NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS    $                    (3,637,038)    $                    (4,494,001)    $                    (7,871,685)    $                  (10,863,313)  
                         
  Net loss per common share                  
    Continuing operations    $                             (0.17)    $                             (0.22)    $                             (0.39)    $                             (0.58)  
    Discontinued operations    $                               0.01    $                             (0.02)    $                               0.02    $                             (0.05)  
    Net loss attributable to common shareholders    $                             (0.16)    $                             (0.24)    $                             (0.37)    $                             (0.63)  
                         
  Weighted average common shares outstanding                  
    Basic                          23,214,370                          17,380,108                          21,234,310                          17,223,571  
    Diluted                          23,214,370                          17,380,108                          21,234,310                          17,223,571  
                         
                         
The accompanying notes are an integral part of these unaudited consolidated financial statements  
                         
SMG INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2021 and 2020
(unaudited)
             
        September 30, 2021   September 30, 2020
             
CASH FLOWS FROM OPERATING ACTIVITIES:      
  Net loss from continuing operations  $            (8,156,892)    $            (9,698,649)
  Adjustments to reconcile net loss to net cash used in operating activities:      
    Stock based compensation                      51,144                        72,136
    Depreciation and amortization                 4,074,738                   3,434,164
    Amortization of deferred financing costs                 1,096,867                      375,680
    Amortization of right of use assets – operating leases                    439,398                      200,039
    Bad debt expense (recovery)                    159,612                      247,558
    Loss on settlement of liabilities                                –                        21,407
    (Gain) loss on disposal of assets                   (114,926)                       (47,052)
    Gain on PPP loan forgiveness                (3,253,100)                                  –
    Changes in:      
      Accounts receivable                (6,508,178)                   2,530,715
      Inventory                                –                                  –
      Prepaid expenses and other current assets                 2,193,864                      858,112
      Other assets                   (306,029)                     (560,131)
      Accounts payable                  2,454,235                  (2,852,030)
      Accounts payable – related party                    105,125                                  –
      Accrued expenses and other liabilities                 2,155,223                   2,278,250
      Right of use operating lease liabilities                   (277,329)                       (47,038)
  Net cash used in operating activities from continuing operations                (5,886,248)                  (3,186,839)
  Net cash used in operating activities from discontinued operations                    568,518                     (466,153)
  Net cash used in operating activities                 (5,317,730)                  (3,652,992)
             
CASH FLOWS FROM INVESTING ACTIVITIES:      
          Cash paid for acquisition of 5J Entities, net                                –                  (6,320,168)
          Cash paid for disposal of MG Cleaners, LLC                     (35,000)                                  –
          Cash paid for purchase of property and equipment                     (97,026)                     (174,004)
  Net cash used in investing activities from continuing operations                   (132,026)                  (6,494,172)
  Net cash used in investing activities from discontinued operations                                –                                  –
  Net cash used in investing activities                    (132,026)                  (6,494,172)
             
CASH FLOWS FROM FINANCING ACTIVITIES:      
    Payment of deferred financing costs                     (20,623)                     (239,558)
          Proceeds on secured line of credit, net                 2,880,180                   3,256,101
          Proceeds from notes payable                     8,274,002                   5,574,048
          Payments on notes payable                (8,698,655)                  (1,100,704)
          Payments on convertible notes payable                     (50,000)                                  –
          Proceeds from convertible notes payable                 3,255,000                   2,644,295
  Net cash provided by financing activities from continuing operations                 5,639,904                 10,134,182
  Net cash provided by financing activities from discontinued operations                   (226,932)                      666,150
  Net cash provided by financing activities                  5,412,972                 10,800,332
             
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH                     (36,784)                      653,168
             
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period                     979,088                        29,568
             
CASH,  CASH EQUIVALENTS AND RESTRICTED CASH, end of period   $                942,304    $                682,736
             
Supplemental disclosures:      
      Cash paid for income taxes  $                            –    $                            –
      Cash paid for interest      $             3,934,717    $             1,445,639
             
Noncash investing and financing activities      
      Non-cash consideration paid for business acquisitions  $                            –    $             4,378,000
      Non-cash increase in secured notes payable related to acquisition  $                            –    $             5,840,622
      Non-cash consideration paid for increase in secured notes payable  $                203,009    $                            –
  Non-cash consideration paid for prepaids from debt financing          $                331,065
  Preferred stock dividend      $                  75,000    $                  59,439
  Note payable for property and equipment          $             1,414,021
  Prepaid expenses financed with note payable      $             3,253,678    $                331,065
  Debt discount from issuance of common stock warrants      $                            –    $                  59,439
      Note receivable for property and equipment  $                521,952    $                            –
  Beneficial conversion feature on convertible notes payable      $             4,036,788    $                            –
  Right of use assets capitalized      $             2,478,508    $                            –
  Non cash increase in convertible debt for AP payments      $                931,034    $                            –
  Expenses paid by related party      $                            –    $                  25,279
  Settlement of accounts payable and accrued interest with common stock issuance      $                            –    $                  66,000
  Shares issued for deferred financing costs      $                            –    $                419,788
  Shares issued and beneficial conversion feature on convertible notes payable      $                            –    $                895,967
             
             
The accompanying notes are an integral part of these unaudited consolidated financial statements

About SMG Industries, Inc.:  SMG Industries is a growth-oriented transportation services company focused on the domestic infrastructure logistics market.  Through several of the Company’s wholly-owned subsidiaries branded as the 5J Transportation Group it offers heavy haul, super heavy haul, hot shot, and drilling rig mobilization services. 5J’s over-dimensional permitted jobs can support up to 500 thousand pound loads which include cargo associated with wind energy, power generation components, bridge beams, compressors, refinery and construction equipment.  SMG Industries, Inc. headquartered in Houston, Texas has facilities in Floresville, Henderson, Odessa, Palestine, and Victoria, Texas.  Read more at www.SMGindustries.com and www.5Jtrucking.net.

Contact:

Matthew Flemming, SMG Industries, Inc. Matt@SMGIndustries.com

SOURCE: SMG Industries, Inc.

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